Public%20Expenditure%20Management%20and%20the%20Medium-Term%20Expenditure%20Framework:%20Overview

1
Public Expenditure Management and the Medium-Term
Expenditure Framework Overview

• Workshop on
• Bhutan Public Expenditure Management
• August 16-20, 2004
• Christian Eigen-Zucchi
• The World Bank

2
Two Caveats

• Improving Public Expenditure Management is a
  process, not an event.
• MTEFs are not a panacea that will immediately
  solve all problems.

3
Core Questions for Government

• Are national objectives being met (as best
  possible)?
• Are government policies being implemented?
• Is the budget used as a tool for steering and
  managing government?
• Does government get the information and analysis
  it needs to make good choices?
• Does the budget process support good
  decision-making and effective programs?
• Are potential spending crises or major
  adjustments anticipated and managed (versus
  reacted to ex post)?
• Is spending efficient and effective?

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Three Objectives of Public Expenditure Management
Systems

• Macro-fiscal discipline and stability
• Avoid public finance crises or the need for major
  adjustments
• Support economic growth and macroeconomic
  stability
• Strategic allocation of resources
• Match government policy with programs, objectives
• Technical efficiency
• Getting the most from each ngultrum spent

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Basic principles of PEM

• Comprehensiveness
• include all revenue and expenditure, all agencies
• Accuracy
• record actual transactions and flows
•  Annuality
• cover a defined period of time (e.g. one year
  budget, multi-year forecasts)
• Authoritativeness
• only spend as authorized by law
• Transparency
• information on spending is public, timely,
  understandable

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What is an MTEF?

• Conceptual framework for thinking about public
  finance systems
• Process oriented, not simply various components
  of the public expenditure system
• Process of government decision-making
• Multi-year emphasis
• Supports learning and continuous improvement
• Emphasizing policy
• linking policy, inputs, outputs, objectives
• Consists of top down estimate of aggregate
  resources and bottom up estimates of the cost of
  implementing policies.

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Technical Objectives of MTEF

• Improve macro-fiscal situation
• Lower deficits, faster economic growth
• More rational approach to retrenchment and
  economic stabilization (when needed)
• Improve impact of government policy
• Strengthen the link between government
  priorities/policies and government programs
• Improve program performance/impact
• Shift bureaucracy from administrative to
  managerial culture
• Managerial flexibility innovation lower
  cost/output greater effectiveness of
  programs/policies
• Generate greater resource predictability

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Common PEM problems

• Weak links between policy, resource limits, and
  budgets
• failure to achieve strategic objectives
• abstract planning, unrelated to ways and means
• Annual focus leads to suboptimal choices
• Separation between capital and recurrent budgets
• Lower than expected returns to capital
• Non-comprehensive budget
• Using other means to support favored programs
• Failure to think strategically about tools and
  objectives
• Not learning as much as possible from experience
• Not harnessing energies of all actors in system
  mismatch of roles and responsibilities
• Taking piecemeal decisions without reference to
  over-all effect

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MTEF Budget Process

• Step 1. Macroeconomic and public sector envelopes
• Step 2. High-level policy aligning policies
  objectives under resource constraints
• Step 3. Linking policy, resources, and means by
  sector
• Step 4. Reconciling resources with means
• Step 5. Reconciling strategic policy and means

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Step 1. Macroeconomic and public sector envelopes
11
Step 2. Aligning policies objectives subject to
constraints
12
Step 3. Linking policy, resources, and means by
sector
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Step 4. Reconciling resources with means
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Step 5. Reconciling strategic policy and means
Policy assessment and reconciliation
Policy official dialogue Modify
baselines Finalize decisions
Revised Requests, Unresolved Issues
Budget Proposal
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Implementing an MTEF

• Adopting the framework requires
• policy-official and technical staff buy-in
• continuous, long-term effort
• Framework should be adapted to the countrys
  needs, based on initial conditions
• macro, sectoral policy
• Institutional capacity development is central to
  success.

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Key Capacity Issues

• Technical
• Staff skills
• policy analysis, budget examination, policy and
  activity-costing
• Accounting system
• Budget execution system
• Policy
• Capacity to enforce hard budget constraints
• Commitment to a continuous process of improvement

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Performance orientation

• Performance is multi-level
• Macrofiscal stability
• Measure Actual relative to approved budget
• Strategic allocation
• Measures
• Actual function/sector budget to approved budget
• Actual to actual
• Annual review of policies and sectoral
  performance relative to targets
• Operating efficiency
• Review of programs relative to financial
  performance, outputs, objectives